London (Platts)--21Jan2011/648 am EST/1148 GMT

A proposed change in UK legislation on ship-to-ship transfers of oil cargoes outside harbor authority areas is unlikely to have much effect on either the movement of oil or on spot worldscale rates in Northwest Europe, industry sources say.

After a review of the relevant Merchant Shipping regulations, parliamentary under-secretary of state for transport Mike Penning announced on December 6, 2010, that legislation would be drafted to define a single designated area within UK territorial waters to carry out ship-to-ship transfers. With a history of hosting ship-to-ship transfers due its sheltered location on the southeastern coast of the UK, Southwold is scheduled to become the designated area in April, and a permit system will be established by the Maritime and Coastguard Agency.

Meanwhile, those port and harbor authorities which already conduct ship-to-ship transfers will have a two-year period of grace to apply for a license to enable them to continue hosting STS transfer operations.

In the oil markets, traders dismissed any impact on the trade and flow of oil in the North Sea.

"Absolutely not, because most [North Sea traders] do Forties ship-to-ship transfer up in Scapa Flow, where traffic is limited and the weather is good, except for the wind," a North Sea crude trader said. Forties has the highest monthly production of the four key North Sea grades of Brent, Forties, Oseberg and Ekofisk.

Another North Sea source said the introduction of the Southwold as a designated area was unlikely to change the nature of North Sea STS operations. However, other traders were more upbeat about the introduction of a designated area, specifically for STS activity.

"It is a perfect STS shelter place," said a fuel oil trader, adding Rotterdam, an alternative port for STS activity, was very expensive due to port charges.

A shipping broker agreed there would be little initial effect. "I don't think there will be any short-term effect, [but maybe it] could [eventually] change rates and routes if they go to Southwold to STS," he said. "But then again, Skaw is a common STS point in the Baltic, and when Skaw started doing STS transfers, there was no big change," he added. OPPOSITION TO THE SOUTHWOLD DECISION REMAINS KEEN The decision to earmark Southwold as a designated STS transfer location has enraged local residents, who are strongly opposed to the decision on environmental and tourism grounds.

"The situation will become worse with the new legislation and there will be more ships which will increase the risk of a spill," said John Perkins, secretary of the local Southwold and Reydon Society. "The government's response has been to close the coastguard station at Great Yarmouth which would have monitored the transfers. This will now apparently be done from Southampton," he added.

Local shipping sources admit the number of STS transfers could increase.

"Potentially there could be a lot of business--up to a hundred vessels [doing STS transfers]," said one.

Other ports around the UK also voiced their concerns. "Maybe those sites where STS is happening now won't comply with the new regulations," suggested one harbor master. Sources agreed there could also be a potential threat of loss of business elsewhere in the UK should STS transfer activity relocate to Southwold.

The UK Department of Transport defended the decision, saying that a permit-controlled, designated area would help improve safety and reduce environmental risk. "It will also be more convenient for shipping companies [to use a designated area] instead of the costs of coming into a port," said a Department of Transport spokesman, adding the new regulations would help manage STS activity more effectively.

But some in the oil industry remained cautious.

"But I don't blame them, I always thought it's too risky what they do off [Southwold]," said a European fuel oil trader. "Can you imagine...if there was a spill and it hit the Norfolk coast? Although STS [activity] is relatively safe these days--it's risk versus reward I guess," he added.

--Rob Sheridan, robert_sheridan@platts.com

--Natasha Saini, natasha_saini@platts.com

--Benno Spencer,benno_spencer@platts.com

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